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Buhari Says Economically Dangerous to go Back to Subsidy

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President Buhari

Nigeria Can no Long Afford Subsidy, Says Buhari

President Muhammadu Buhari has said it is economically dangerous to go back to the era of fuel subsidy given a 60 percent decline in revenue generation.

The president, who was represented by the Vice President, Professor Yemi Osinbajo (SAN) at the opening of the First Year Ministerial Performance Review Retreat for Ministers, Permanent Secretaries and Top Government Functionaries, at the State House Conference Centre, said the plunged in global oil prices due to COVID-19 has compelled the administration to make some tough calls that may cause initial pain but necessary for long-term gains.

He said “The COVID-19 pandemic, which has affected economies globally, has compelled us to make some far-reaching adjustments that may cause some initial pain, but which is necessary for long-term gains. As you all know, when oil prices collapsed at the height of the global lockdown, we deregulated the price of premium motor spirit (PMS) such that the benefit of lower prices was passed to consumers.

“This was welcomed by all and sundry. The effect of regulation though is that PMS prices will change with changes in global oil prices. This means, quite regrettably, that as oil prices recover, we would see some increases in PMS prices.

“There are several negative consequences, if Government should resume the business of fixing or subsidizing PMS prices. First of all, it would mean a return to the costly subsidy regime. Today we have 60% less revenues; we just cannot afford the cost. The second danger is the potential return of fuel queues – which has, thankfully, become a thing of the past under this administration. Nigerians no longer have to endure long queues just to buy petrol, often at highly inflated prices.

“Also, as I hinted earlier, there is no provision for fuel subsidy in the revised 2020 budget, simply because we are not able to afford it, if reasonable provisions must be made for health, education and other social services. We now have no choice.

“Nevertheless, I want to assure our compatriots that Government will remain alert to its responsibilities. The role of government now is to prevent marketers from raising prices arbitrarily or exploiting citizens. This was why the PPRA made the announcement a few days ago setting the range of price that must not be exceeded by marketers. The advantage we now have is that anyone can bring in petroleum products and compete with marketers, that way the price of petrol will be keep coming down”, the President said.

Speaking on the implementation of service-based billing for electricity, he said the adjustment was a painful one but its necessary if the nation wants consistent and reliable power supply.

He said “The other painful adjustment that we have had to make in recent days is a review of the electricity tariff regime. If there is one thing that we have heard over and over again, it is that Nigerians want consistent and reliable power supply. So the power sector remains a critical priority for the administration.

“Protecting the poor and vulnerable, while ensuring improved service in the power sector, is also a major priority for Government. And our policies, like the social investment programmes and other socio-economic schemes to benefit Nigerians, show that we remain focused on improving the welfare of the common man.

“The recent service-based tariff adjustment by the Discos has been a source of concern for many of us. Let me say frankly that like many Nigerians I have been very unhappy about the quality of service given by the Discos. That is why we have directed that tariff adjustments be made only on the basis of guaranteed improvement in service.

“Under this new arrangement only customers who are guaranteed a minimum of 12 hours of power and above can have their tariffs adjusted. Those who get less than 12 hours supply (Band D and E Customers) will not see any tariff adjustment. The poor and under privileged who were on R1 lifeline tariffs in the old structure will be maintained on lifeline tariffs, meaning that they will experience no increase.

“Government has also taken notice of the complaints about arbitrary estimated billing. Accordingly, a mass metering program is being undertaken to provide meters for over 5 million Nigerians, largely driven by preferred procurement from local manufacturers – creating thousands of jobs in the process. NERC has also been instructed to strictly enforce the capping regulation which will ensure that unmetered customers are not charged beyond the metered customers in their neighbourhood,” he said.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Economy

Inflation Rate Increases Further in August to 13.22%

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Prices of Goods and Services Jump in Nigeria in August

Nigeria’s inflation rate rose further in the month of August to the highest since April 2018, according to the latest report from the National Bureau of Statistics (NBS).

In the report released on Tuesday, the NBS said Consumer Price Index, which measures inflation rate, increase by 13.22 percent in the month under review.

This represents a 0.40 percent points increase from the 12.82 percent posted for the month of July.

On a monthly basis, consumer prices increased by 0.09 percent points from 1.25 per cent achieved in July to 1.34 percent in August 2020.

The report read in part, “The consumer price index, which measures inflation increased by 13.22 percent (year-on-year) in August 2020. This is 0.40 percent points higher than the rate recorded in July 2020 (12.82 percent).

“On a month-on-month basis, the headline index increased by 1.34 percent in August 2020. This is 0.09 per cent higher than the rate recorded in July 2020 (1.25 per cent).”

Rising costs continue to disrupt consumer spending in Africa’s largest economy, especially after President Muhammadu Buhari removed subsidy, up VAT from 5 percent to 7.5 percent and implemented service reflective electricity tariff during a tough period of global pandemic.

Despite majority of Nigerians saying the time is wrong, experts have said it was the International Monetary Fund and the World Bank that compelled the administration to up revenue generation in order to continue to service its debt and embark on necessary capital projects.

With the $3.4 billion loan secured from the IMF in May running out amid falling oil price and weak demand for the commodity, the Buhari led administration once again approached the World Bank for another loan of $1.5 billion to further cushion the negative impacts of COVID-19.

According to the people familiar with the process, the new loan is not receiving much attention from the multilateral financial institution as it insisted that some of the agreement reached with the International Monetary Fund before securing the $3.4 billion have not been implemented.

This, experts said was one of the main reasons the federal government made all the recent adjustments despite economic challenges and limitations.

The food index increase from 15.48 percent in July to 16 percent in the month of August, according to the statistics office.

“This rise in the food index was caused by increases in prices of bread and cereals, potatoes, yam and other tubers, meat, fish, fruits, oils and fats and vegetables,” it added.

The persistent increase in prices bolstered cost of living and plunged consumer spending in Africa’s largest economy due to broad-based layoffs and businesses shutting down operations for a safe haven.

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Economy

NNPC Says It Spent N41.98 Billion on Pipeline Repairs in Six Months

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NNPC Spends N41.98 Billion on Pipeline Repairs

The Nigerian National Petroleum Corporation (NNPC) has said it spent a total sum of N41.98 billion on pipeline repairs and management in the first six months of the year.

The corporation stated in its latest monthly oil report, saying “Products theft and vandalism have continued to destroy value and put NNPC at disadvantaged competitive position.”

It explained that a total of 1,067 pipeline points were vandalised between June 2019 and June 2020 with 33 of those vandalised in June 2020. That was 11 percent lower than the 37 points vandalised in the month of May.

The NNPC said, “Mosimi-Ibadan accounted for 33 per cent while ATC-Mosimi and Warri-River Niger recorded 27 per cent of the breaks each; other locations make up for the remaining 13 per cent.

“NNPC in collaboration with the local communities and other stakeholders continuously strive to reduce and eventually eliminate this menace.”

Further break down showed the NNPC spent N5.48 billion on pipeline repairs and management costs in the month of January 2020. In February, March, April, May and June of the same year, the corporation spent N6.74 billion; N7.69 billion; N7.84 billion; N7.99 billion and N6.24 billion, respectively.

The corporation also said the pipelines have aged over the years, therefore, giving rise to frequent failures and consequent operational downtimes.

“In addition, these facilities have aged over the years giving rise to frequent failures and consequent operational downtimes, high maintenance cost and revenue losses,” the NNPC added.

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Economy

Supporting Public Private Partnerships in Africa: African Development Bank Ready to Scale up

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The African Development Bank Estimates Africa’s Infrastructure Financing Needs at up to $170bn a year by 2025

Representatives of the African Development Bank, governments, Development Finance Institutions, the private sector and professional associations joined a September 8 workshop to discuss how the Bank can strengthen support for Public Private Partnerships and channel greater investment toward economic and social infrastructure. The event, titled Designing the African Development Bank’s PPP Framework, was hosted virtually by the Bank.

The workshop took place against the backdrop of the ongoing COVID-19 pandemic and the ensuing economic slowdown, which has sharpened an already urgent need for investment. Five African countries accounted for more than 50% of all successful PPP activity from 2008 to 2018: South Africa, Morocco, Nigeria, Egypt and Ghana. Several other countries have multiple PPPs in the pipeline– Burkina Faso has 20, and Botswana, 8.

“Before the COVID-19 pandemic, African infrastructure was already struggling to structure projects tailored for the private sector and at the same time achieving value for money for the public sector including affordability for users. It is therefore imperative that hybrid solutions such as PPPs must be seen and promoted as a way of building back better, stronger, greener, by clawing back private capital to infrastructure while creating much needed fiscal room for governments to address multiple other demands including building health systems’ resiliency.” Bank Vice President Solomon Quaynor said in his opening remarks.

The African Development Bank estimates Africa’s infrastructure financing needs at up to $170 billion a year by 2025, with an estimated financing gap of up to of $68 to $108 billion a year. PPPs are seen as a key element in narrowing this gap by crowding in private sector investment in infrastructure and African Development Bank is playing a critical role in scaling up that effort.

Amadou Oumarou, Director for the Bank’s Infrastructure and Urban Development department presented several rationales for the Bank’s effort to develop a PPP framework, including its Ten-Year Strategy (2013-2022) and a recommendation from the Bank’s Independent (IDEV) evaluation unit to scale up PPP interventions.

Webinar participants expressed a desire for the Bank to play an expanded role in supporting PPP development in Africa by strengthening policy and regulatory frameworks, building government capacity; project structuring and advisory services; and the provision of financing instruments such de-risking, guarantees, credit enhancements and local currency financing.

“Countries need to learn from each other’s achievements and mistakes, they need to have standard documents and checklists that will guide institutions in these countries through the PPP lifecycle,” said Shoubhik Ganguly of Rebel Group International, which is partnering with the Bank to develop the framework.

Mike Salawou, Division Manager; Infrastructure Partnerships, said “Policy dialogue is something the Bank places a lot of premium on, and that has proven to be very efficient in informing decision making.”

“One of the challenges RMCs are faced with is selecting the right project for implementation, therefore support should start from there, then going through to actual project preparation makes it a lot easier,” said Michael Opagi, Division Manager for Sub-Saharan Africa, IFC.

Private sector representatives praised DFIs as indispensable in securing financing for PPP projects in Africa. One example of a successful PPP project cited during the workshop is the Kigali Bulk Water project, which received significant backing from the African Development Bank, the World Bank, as well as private sector players.

According to Phillipe Valahu, CEO, PIDG the Kigali Water project is a perfect example of having an integrated support to a PPP project by using the three pillars proposed in the Bank’s PPP Framework. The project benefited from debt funding from PIDG alongside the African Development Bank which each provided $19 million of senior debt on commercial terms.

“The African Development Bank has unparalleled trust relationships with African governments, and we need to take advantage of that to speed up implementation of PPPS,” Quaynor said in closing.

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